Philanthropy 101

Ten Tips for Personal Philanthropy

Anybody, at any age and at any level of wealth, can be a philanthropist. Most people give money to favorite causes, but many do so on auto-pilot, or only when asked. My definition of a philanthropist is someone who thoughtfully invests in organizations who can be a partner to improve the common good.

Donna with husband Len and other donors touring the new Stanford Hospital

Mine is not the conventional definition. First, I call it an investment in an organization, rather than a donation. It’s not an investment in the usual sense, where one expects a financial return. It is an investment in the sense that there is a philanthropic return, i.e. you put in money, and someone’s life gets better — a farmer gets a micro-loan, an inner-city student gets a scholarship, a new park is created, etc. Second, I call it a partnership between the philanthropist and the non-profit organization. Both sides need to respect each other. The non-profit should respect the philanthropist for the role they play in providing resources, and the philanthropist should respect the non-profit for their expertise and their ability to make good things happen in the world.

I’ve expanded my own personal philanthropy over the years and, along with my husband, have developed ten key principles that guide our giving. Not all of these will fit everyone, but I’m confident that at least some of them will resonate with you.

1. Give on your schedule, not theirs.

I was overwhelmed with constant requests for gifts, both casual solicitations in the mail and larger “cultivations” from major philanthropic organizations. My husband and I decided to act as if we had a personal philanthropic foundation. We accumulate requests during the year and schedule an annual meeting to review our philanthropic goals and gifts. We moved all the payment schedules to this date in early November, and we consider all requests together, at one time. My quick response to most requests is “we will consider it when our foundation meets in November”. There are exceptions, of course, where decisions have to be made on a timely basis. But we have found that 90% of what we give is now handled in that one evening.

2. Give through a philanthropic fund.

A philanthropic fund (“phil fund”) is a kitty that you set up, usually with a community charitable foundation, from which you can direct contributions. You get the tax deduction when you donate INTO your phil fund at the community foundation, then you recommend gifts that the foundation approves and pays. Usually the foundation’s approval is routine, as long as you are working with established charities with legitimate 501(c)3 not-for-profit status.

There are several advantages of giving through a phil fund. First, you separate the timing of your tax-deductible donations from the timing of your charitable gifts, allowing you to be thoughtful about both. For example, if you own appreciated stock and want to donate it, you can donate to the phil fund when the price is right, but not have to decide where to direct the donation until you are ready. Another advantage is that most foundations with phil funds have excellent online systems. All your previous donations are listed, so recommending grants is a simple matter of entering the numbers and, poof, you are done. No writing checks! Yet another positive is that the sponsoring foundation also can vet and recommend great charities. So if you want to donate for disaster relief to Haiti, for example, you can see who they recommend.

There are many good foundations who enable phil funds. We have funds at both the Jewish Community Federation of San Francisco and the Silicon Valley Community Foundation. Note that the unspent balance in your phil fund usually goes to that organization when you pass away, so you need to consider the estate implications. If you resonate with the mission of the organization, you probably will be okay with this idea. Note also that these funds may have minimums to get started.

You also should inform yourself about current tax policy. A cousin just pointed out to me that there is a new law that if you are over 70 years old, you can give directly out of an IRA without paying income on the IRA withdrawal. Tax policy changes frequently, so it is worth getting up to date on current tax considerations before plotting a giving strategy.

3. Figure out what you went to accomplish, and then find the organization that can help you do it.

Over lunch one day a friend said to me, “I’m so frustrated with people asking me all the time for money. I have a hard time figuring out who to give to.” I pointed out that she was starting from the wrong place. Instead of picking from among organizations approaching her, she should first think about her priorities for charitable giving. Is improving local K-12 education her passion? Addressing poverty in India? Combatting disease in Africa? Finding a cure for pancreatic cancer? There are a million good causes. You simply cannot address them all. You have to think through which problems are the ones you care about the most. Then seek out the organizations who operate most effectively in that area.

I’ve been dismayed at the recent trend, particularly among young Silicon Valley philanthropists, to believe that they have to “reinvent the wheel” — that there couldn’t possibly be an organization out there today that is already creatively and innovatively addressing their goals. Often that is simply not true. I just heard a speaker say that she believed that encouraging private enterprise is the solution to poverty (something I believe in as well), so she is creating a new organization to do this. Why not support Endeavor, which works with entrepreneurs around the globe? Or TechnoServe, which focuses on agricultural entrepreneurship? Or Accion, which has a multi-decade history of micro-lending? Unless you plan to dedicate yourself to this effort, it is far more efficient to partner with organizations that are working on the problems you want to address, rather than to create something new.

4. Do your due diligence.

You should be as careful when donating to a charitable organization as you are when hiring a new employee or going to work for a new company. Check out their financial statements; their IRS 990 forms are public information. Are they operating in the black? This fact alone is the greatest sign of a well-run organization. The leadership should match their expenses with their revenues. Of course emergency situations arise that occasionally drive an organization to operate at a loss. But over the long term, the organization needs to be financially prudent, and only spend what it takes in.

You also can research the key employees and make sure that you are comfortable that their background fits the mission. You can check references, or talk with other key donors to understand their experience. Most organizations will be happy to provide any additional information that you request. We even have met with the auditors of an organization and with members of the board, to make sure that we are comfortable with the way the organization is managed.

5. Think about the scale of what you are giving relative to the scale of the organization or campaign.

I think of gifts in two flavors: leadership gifts and participation gifts. For leadership gifts, you want to give enough to be a significant fraction of the goal. For example, if your child’s preschool is trying to raise $10,000 to upgrade the playground, consider a leadership gift of $2,500. Leadership gifts can come at any amount and often can be paid over multiple years. In a major university campaign, it might take a gift of $5 million to be a leader! But, there are many smaller campaigns where you can play a leadership role, even if you do not have great wealth.

Participation gifts, on the other hand, are a “drop in the bucket” relative to the organization, but are still important. Why should you give $100 to your college if you can’t imagine that it is going to make a difference, and when you feel other organizations need it more? Because many little gifts add up to a lot of money. In every fundraising campaign the organization is working to fulfill a “gift table” that often conforms to the 80/20 rule: 80% of the money will come from the 20% of the givers, those who provide the leadership gifts. However, that last 20% of the gifts comes from 80% of the givers, and those are the participation gifts. They add up. Think of your participation gift as an exercise in community giving; together, with many others, you are making an important donation.

Here are some other types of participation gifts that are important: support friends who are actively engaged in raising money by sponsoring their run or bike ride, buy at the neighborhood school bake sale, purchase seats or tables at events that honor people you know and respect. Although sometimes these “asks” can feel oppressive, you should feel great about the leverage that comes from making participation gifts to support other people’s fundraising efforts.

6. Give more than money.

Money is one of the most important resources you can give to an organization to partner with them to accomplish their mission, but they also need volunteer help. Consider the many possible ways that you can help an organization in addition to sending them money. Pick carefully, though — sometimes it’s easier to write lots of checks than it is to donate your time. And once you do volunteer, follow through. The charitable organization is not well served by people who offer their services, but don’t do what they promised.

The most obvious way to volunteer is to help deliver the mission: tutor under-privileged children, sort cans at the food bank, or be a docent at your local museum.

A more strategic contribution is to join a committee or the governing board of the organization. To be on the board, you’ll need to be invited; generally these invitations happen once you become involved and the leadership gets to know you and has confidence in your contribution. Being a board member can be very rewarding because you are involved in larger decisions such as resource allocation and personnel, and you have a greater impact over a longer period of time.

You also can join a committee rather than the board itself. For example, many organizations have an investment committee that decides how to invest money while it is waiting to be deployed. If you are a financial professional, and have expertise to offer, you can join the investment committee, which requires less time than being on the board yet still offers great help to the organization. There are many other committees that seek expertise. You should think through your experience and contact the organization to figure out the best fit.

7. Say no graciously.

It’s okay to say no. You don’t have to give gifts to everybody who asks. You can simply say, “I believe in a focused approach to my philanthropy, and this particular cause is not in my focus today. Your organization seems to be engaged in important work, so I wish you the best of success.”

8. Let your money be flexible — grow capacity, not just programs.

The conventional wisdom in philanthropy circles is that you should evaluate an organization’s effectiveness by examining the ratio of internal cost to what it spends on the mission. The thinking is that “overhead” is bad, so the organization should minimize this expense. Moreover, many philanthropists want to fund specific projects and not any of the overhead. This feeling is understandable — donors want to make something happen, and they enjoy seeing the specific outcome associated with their gifts.

However, I feel that sometimes this approach is short-sighted (see the great TED talk by Dan Pallotta on this subject). Yes, sometimes it makes sense to support a specific project, like getting a program started or renovating a facility. But organizations cannot survive unless they have great leaders, and these leaders should be paid at market rates. They also need strong internal processes, such as financial systems to track their spending. They need good marketing, to make sure that the world knows what they are doing. And they need professional fundraisers (the “sales department”) to find people who resonate with the mission. Indeed, a great non-profit needs many of the same things that a great company does, and it doesn’t make sense to ask them to do great work without the infrastructure to enable it.

We sometimes give gifts that are restricted for specific programs or projects. But we also believe in giving regular unrestricted gifts for the organization’s operating budget. Even if you do want to designate a gift for a specific purpose, consider wording that gives flexibility to the organization to adapt it as needed. Another idea is to give a program gift along with an annual operating gift, even if the second is smaller. It’s also helpful to think longer term when giving operating gifts. We try to be consistent in the amount we give for many years, allowing the organization to know that there are certain resources they can count on. In brief, invest your philanthropic dollars in great organizations that serve the missions you care about, not just in specific programs.

9. Consider a portfolio approach.

A few years ago, my husband and I did an analysis of our giving. We created a table with “causes” across the top, and “geographies” down the side. The causes were things that we cared about: Jewish activities, cultural activities, education, fighting poverty, protecting the environment, and so on. The geographies were four: local, regional, national and international. We then mapped our giving into this matrix, to see the distribution.

We learned quite a bit from this exercise. For example, we saw there was a blank in “Jewish + international” box, and so decided to support something in Israel. We thought about the causes we really cared about (see tip #3 above), and evaluated organizations working on that issue (in this case, our issue of concern is religious extremism). Through research, we discovered that the Israel Democracy Institute was doing some compelling work on this problem; we did our due diligence and then we made a leadership gift to IDI.

In the portfolio analysis, we also found “boxes” that were weighted more heavily than we realized, and consequently we have had an easier time declining additional opportunities in those areas.

The portfolio approach might not be for everybody. But if you find that you are giving to a wide variety of causes and don’t feel that you have a grip on the bigger picture, you might want to give it a try.

10. What’s in a name?

I have mixed feelings about giving under my name vs. anonymously, and about attaching my name to something specific in recognition of my charitable giving. My first reaction to this tradition was to request anonymity. I wasn’t giving money in order to get attention. Further, I wasn’t wild about other organizations approaching me once I was known to be generous.

But when I asked to be anonymous for the first leadership gift I gave, the organization asked me to reconsider. They pointed out that seeing other people’s names on campaigns inspires people to give. Donors like to be part of a broader peer group. So, somewhat reluctantly, I agreed that my donation would not be anonymous.

When it comes to attaching a name to a specific aspect of a project, this technique seems to me to have gotten a bit out of control. Certainly, it makes sense to me that someone who makes a mega gift to start an institute or to build a hospital should be welcome to put their name on it. It is well-deserved recognition for magnificent generosity. But campaigns now have attempted to take this concept down to micro-levels, with naming extending to individual rooms in the hospital, individual seats in the theatre, individual steps on the stairway, and individual bricks in the entry.

Generally, our strategy is to NOT give anonymously in order to help inspire others. However, we often decline specific naming opportunities, preferring general recognition only. That being said, we do have our bricks and seats as well!

Next Steps

So how do you get started being a philanthropist? Here is your to-do list.

- Set an annual budget.

- Determine the split between leadership gifts and participation gifts. Remember that leadership gifts can be paid over several years. You also want to keep some room in your budget for participation gift opportunities that come up later in the year.

- Make a spreadsheet that includes future years, so you can track your commitments as well as your intended future gifts (such as multiple years of consistent giving to organizations’ operating budget even if not committed).

- Think about what causes you care most about.

- Consider a portfolio approach.

- Identify organizations that can address those needs. Do adequate due diligence on organizations you are considering, particularly for leadership gifts.

- Set an annual date to review your giving. Put it on the calendar as a repeating event.

If you do all or most of these items, then as far as I’m concerned you are a philanthropist. Welcome to the club!